What’s the role of carbon offsetting in the net zero pathway?

Offsetting carbon emissions is not a preferred option, but it can have a part to play

Committing to the use of high-quality carbon offsets that are priced appropriately will require that companies share their ambitions with one another.

Phoebe Lewis

No matter how much effort companies make to reduce their emissions, there will still be a proportion that cannot be reduced.

There’ll be old buildings that we cannot entirely retrofit, carbon-intensive cement that we cannot avoid using and modes of transport that we cannot electrify in time. To ensure that companies can get their portfolios to net zero carbon, they’ll need to explore the best options for offsetting residual emissions.

Carbon offsetting has come in for criticism over the years, most notably that it’s a form of green washing. Nevertheless, concerted effort to iron out these issues is mounting as the essential role of offsetting in reaching net zero carbon becomes more evident.

Can we just offset all our emissions?

This is a question that comes up time and again. While carbon offsetting is seen as essential, all net zero carbon frameworks are clear about its role; it must be used as a last resort.

All net zero carbon pathways have a hierarchy of actions, selected to achieve a low carbon future as efficiently and with as little unnecessary excess capacity in our energy system as possible. This begins with understanding the emissions baseline and projection, then reducing operational energy, increasing renewable energy, reducing embodied carbon, and only then, offsetting any residual emissions. In following this hierarchy, it’s expected that the only emissions that a company will offset will be those that are difficult to abate.

Why pay £20/tCO2 when you can pay £5/tCO2?

There are a number of different offset providers and there’s also a huge range of project types and carbon prices per project available. It’s can therefore be difficult to know what projects to invest in and what price to pay.

The most well-known carbon offsetting provider is the Gold Standard which has a range of carbon prices available in the region of $2/tCO2 to $20/tCO2. The calculations for carbon prices depend on a few factors:

Value created beyond carbon: This commonly focuses on the social value created. For example, providing improved cook stoves to families will not only reduce emissions, but also improve indoor air quality and reduce the incidence of respiratory illness

Size and location: Smaller projects are often more expensive to initiate and so command a higher carbon price

Vintage: In theory, projects put in place years ago are of greater value because of the lasting impacts of carbon in the atmosphere

Differences in emissions reductions methods: Unplanned emissions avoided (e.g. preventing illegal deforestation) are of greater value than planned ones (e.g. preventing legal deforestation)

Project quality: This varies even though most offset schemes aim for high standards. Key to this is local stakeholder engagement to ensure that the project can be maintained and extended

Though a useful set of criteria, it’s commonly accepted that most of the carbon prices for offsets are far too low to incentivise net zero carbon aligned pathways. There’s still no industry wide indicative price for carbon offsets. However, most industry-leading clients we’ve engaged with aim for higher prices in the range of £20-25/tCO2. This marks a shift to what are called ‘high quality offsets’. The market for such offsets is still developing and the choices of these companies are critical for the shift.

Should we disclose how much we are paying and what we are paying for?

Committing to the use of high-quality carbon offsets that are priced appropriately will require companies to share their ambitions with each other. Yet there’s still a huge lack of transparency around the setting of carbon prices, which makes it challenging for companies to know what carbon price to set, or be willing to pay, for their offsets.

Companies are increasingly disclosing their emissions and accounting practices in line with the GHG Protocol. As the demand for corporate carbon offsetting grows, it will also be essential for them to disclose the types of offsets they are using and the prices they are paying so that the industry can start to coalesce around an accepted and net zero carbon aligned metric.

As part of this, there needs to be transparency around the offsets which have been purchased and the verification of these offsets. Verification is crucial to ensuring that the offset activity actually took place, that the total tonnes of emissions offset has been calculated correctly and that any double counting was avoided.

What types of offsets should we invest in?

The £5/tCO2 offset is a thing of the past. As the industry shifts to high-quality offsets, it focuses on ensuring that these offsets are ‘additional’, avoid negative unintended consequences, and are permanent. These elements were codified in the recently developed Oxford Offsetting Principles.

When an offset is additional, it means that the emission reduction or carbon removal would not have taken place without that offsetting activity. It might seem obvious that this should be the case, but additionality is sometimes hard to determine and verify in practice. Nevertheless, programmes exist to verify these emissions and more are likely to come.

It’s always hard to anticipate all negative unintended consequences of an activity. For instance, a project could plant a large number of trees in an area that has disputed local land rights or a non-native tree species could have adverse effects on local biodiversity. This is not a new concern, however, and it is possible to have a social safeguarding review process embedded into decision-making to minimize this risk.

When an offset is deemed ‘permanent’, it means the focus is on enhancing storage and minimizing the risk that the emissions will be re-released into the atmosphere. A key example is reforestation. Planting these trees will remove carbon emissions from the atmosphere, but if these forests are later destroyed, the stored carbon is released and the offset is no longer valid. This doesn’t mean such offsets should be overlooked but monitoring and verification are essential.

This also brings up a longer-term question about the types of offsets to be used. Currently, most offsets are a type of emission reduction, namely ones that avoid the release of new emissions into the atmosphere. For instance, installing renewable energy instead of fossil fuel-based energy to generate carbon credits that could be used for offsetting.

While these types of offsets will continue to be essential for years to come, there is a need to shift to carbon removal offsets, which remove emissions directly from the atmosphere, such as through afforestation (i.e. planting trees in an area where there was no previous tree cover) or carbon capture and storage (CCS) on industrial facilities. There are more high-technology carbon removal offsets, such as bioenergy with carbon capture storage (BECCS), which will require more investment and development in many cases. This transition is essential because even if carbon emissions stopped right now, there’s still such a vast quantity of emissions stored in the atmosphere that the warming trajectory would continue.

Creating the incentives for a strong offsetting market?

In addition to disclosing the adoption of high-quality, verifiable carbon offsets, the industry needs to set in place some general guidance on the parameters of offsetting, especially around indicative carbon prices.

This would build on the guidance that is being issued through the Oxford Offsetting Principles, the UCL-Trove Voluntary Carbon Market consultations, and the UK government’s Taskforce on the Voluntary Carbon Market.

There’s also a need to put in place long-term offset purchase agreements that could function much like power purchase agreements (PPAs). These would provide some of the certainty that offset providers need  to escalate the offset market to a viable commercial level.

To find out more about how JLL can support you with your net zero carbon pathway please visit our service page here or get in touch

This article is part of our Net Zero: The Big Questions series which looks at some the complex questions around how buildings can achieve net zero carbon. Check out the rest of the series below:

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